If the [iTunes music store] was forced to absorb any increase in the … royalty rate, the result would be to significantly increase the likelihood of the store operating at a financial loss–which is no alternative at all. Apple has repeatedly made it clear that it is in this business to make money, and most likely would not continue to operate [the iTunes music store] if it were no longer possible to do so profitably.”

– iTunes vice president Eddy Cue

Not that it would ever have happened anyway, but Apple (AAPL) will not be shutting down the iTunes Store in protest over increased royalty rates paid to songwriters and publishers for CDs and digital music downloads. The Copyright Royalty Board Thursday left the rate for royalties unchanged at nine cents a track, paying no mind to a proposal by the National Music Publishers’ Association that would have raised it to 15 cents–a 66 percent hike.

Seems Apple’s posturing paid off. Said Apple spokesman Tom Neumayr, “We’re pleased with the CRB’s decision to keep royalty rates stable.”

The RIAA and its online counterpart, the Digital Media Association, have petitioned the Copyright Royalty Board to slash the so-called mechanical royalties paid to musicians and music publishers for digital downloads, subscription music services and ringtones. Seems the RIAA and DiMA feel they’ve suffered unfairly during the transition to digital distribution and they’d like artists to share in their misery.

The National Music Publishers’ Association, noting the favorable economies of digital distribution, asks for a royalty of 15 cents per track for permanent digital downloads. The RIAA argues that a royalty of approximately 5 cents to 5.5 cents per track is more reasonable. The DiMA–which represents Apple, Amazon and RealNetworks, among others–suggests cutting that royalty further still.

Find that astonishing? Just wait; it gets worse. For streaming music services, the NMPA proposes a rate of the greater of 12.5% of revenue, 27.5% of content costs, or a micro-penny calculation based on usage. The RIAA finds 0.58% of revenue more reasonable. And the DiMA says there really shouldn’t be any royalty at all. “Fundamentally, this fragile marketplace is showing signs of promise, but it cannot be saddled with additional, excessive costs,” the DiMA argues. “The board should be careful not to impose a royalty that kills the proverbial goose and deprives songwriters and publishers of their golden egg.”

An interesting choice of metaphor and one in which the DiMA and RIAA might easily figure as the giant at the top of the beanstalk:

Fee! Fie! Foe! Fum!??
I smell the blood of a musician.
Be he ‘live, or be he dead,
I’ll grind his bones to make my bread.”

Grind his bones to make my bread, indeed.

Said Rick Carnes, president of the Songwriters Guild of America: “Our opponents have to recognize that this rate-setting is not a matter of gamesmanship for songwriters, but rather one of survival. As I stated in my testimony, in response to a question from those seeking to cut the mechanical royalty rate in half and to denigrate the importance and contribution of professional songwriters to the music industry, ‘Yes, songs are plentiful, just as rocks are plentiful. But if you want diamonds, you are going to have to pay the miners a living wage.’ “

This time, the National Music Publishers Association is adding its name to an existing lawsuit over whether the video-sharing site–big surprise–violated copyright laws. The group owns copyrights to lyrics and melodies for songs, rather than the songs themselves, which are mostly owned by record labels.

And while the four big labels have struck their Faustian bargain with YouTube, betting perhaps that ad dollars are their future and convinced of the need for the marketing power on YouTube, the NMPA is not buying that story quite yet.

Naturally, Google, owner of YouTube, can’t believe anyone would refuse its kind offers of promotional help in exchange for putting up with some intellectual-property infringement.

You can just hear those techies from their nerd version of Willy Wonka’s factory in Mountain View, Calif.: Can you imagine, those ingrates–can’t they understand our big brains will get to their puny concerns when we are good and ready!

“Many song writers and music publishers view YouTube as a promising promotional platform for connecting with their fans,” Google said in a statement to The Wall Street Journal. “We are surprised and disappointed that the NMPA has elected to take this route.”

Well, the company should not be that surprised, given that YouTube has yet to roll out its video “fingerprinting” technology that could help identify suspect clips on the site.

Until then (a fall date has been mentioned), Google has been claiming it is not at fault, since it removes clips when content owners ask and it is following U.S. copyright law. Here is a great piece by the Journal’s Kevin Delaney today on efforts in this regard.

Still, many content owners are plenty unhappy with the cost and effort needed to police the giant service. The lawsuit the NMPA is joining includes other content owners. In addition, in another suit, Viacom has famously sued Google for $1 billion over similar allegations of copyright infringement.

To get you up to speed, below are the highlight videos (full interviews to be posted soon on this site) of interviews Walt and I did with three of the players in this debate at D5 in late May: YouTube founders Chad Hurley and Steve Chen; Viacom CEO Philippe Dauman; and Eric Schmidt, CEO of Google.

We interviewed them onstage in that order right after each other, to underscore the copyright debate. But also, just because we’re puckish that way.

At the end, there is also a video related to Delaney’s copyright-police story.

Please see this disclosure related to me and Google.